Surviving Disruption in Distribution: Adapting to Amazon’s Expansion

For distribution companies, it was hard enough to face an increasingly complex and competitive industry that didn’t include Amazon. But now that Amazon jumped into the fray, taking less than a year to generate $1 billion in Amazon Business revenue before joining the ranks as a top 10 global industrial distributor in less than three, distributors need to act.

As we discussed in this blog, the company has changed expectations and has the opportunity to take 10% of the B2B distribution market. However, as noted in an MDM article, they are still new to the market, are much less focused, and are yet to have matured; distributors still have an opportunity to reinforce their claim or grab a bigger piece of the market.

From $10 Billion to 10% of the Market: Amazon’s Next Three Years

According to Applico, Amazon announced that it reached $10 billion in annualized sales on its B2B marketplace in September 2018, reaching the scale of all but the top 5 B2B distributors. Already a giant, this number is only set to increase: At its current trajectory, Amazon Business is projected to claim 10% of the addressable US market for B2B eCommerce and 5% of the international market by 2021.

However, this growth comes with a range of caveats.

First and most noteworthy, the $10 billion figure is in the form of Gross Merchandise Volume (GMV), a number that represents all revenues from both first and third-party sellers, the latter of which is a much larger portion.

Second, it represents a very specific range of categories in which they are doing well—industrial, automotive, tools, hardware and lighting are lightweight and easy to ship.

Third, as the company has long specialized in delivering consumer products, their ability to deliver bulky and heavy goods has been limited.

Where Amazon is Strong

As a company that has long been successful in delivering consumer goods quickly, Amazon was able to launch and quickly capitalize on industrial, automotive, tools, hardware and lighting. These areas provided them early growth. According to Applico’s Marketplace tracker, Amazon’s current dominance is in the industrial and tools markets, with more than 50,000 sellers in each of these, as well as strong growth in the number of sellers.

Added to this, the company also has a strong presence in automotive, lighting, and hardware, areas in which shipping is easy. With more than 30,000 sellers in each of these, the company has already made its presence known.

Where Amazon is Growing

In addition to a massive presence in the industrial market, Amazon still sees a 30%+ growth rate in the number of sellers in this field, painting a picture of what the company may look like in coming years. Additionally, more and more sellers in the janitorial and safety fields are joining Amazon Business, with YoY seller growth of 39% and 30%, respectively.

Where Amazon Business is Yet to Gain Footing

If there are two areas where Amazon is yet to capitalize, it’s the raw material (less than 2,500 sellers) and material handling industries. According to Applico, “these large, bulky items don’t fit Amazon’s traditional distribution infrastructure as well as the smaller, pack-and-ship type items that comprise a large part of the bigger product categories.” Another area they have yet to focus is healthcare/medical supplies/dental, but according to Forbes, it’s only a matter of time.

How to Hold up to the Coming Storm

Amazon is a trusted name in the B2C world, hosting, media, and more, which made its venture into B2B fast and easy. It took seven years to grow the B2C marketplace from $1B to $10B, and ten years for AWS to hit the same number.

For those in industries known for selling bulky or difficult to transport goods, you are at an advantage—for now. Your current relationships and distribution channels are stronger than Amazon’s for transporting products such as raw materials and material handling. For those in markets Amazon has already gained a strong footing, your window is shorter.

The Small and Medium Distributor Dilemma

Is it “Join or die” or “don’t tread on me?” For small distributors, this is one of the biggest dilemmas. Amazon Business could derail you if you don’t join, but joining means that you will be sacrificing customer data, a cut of your profits, and will have to play by their rules. Yes, you gain the opportunity to increase the number of buyers, but also face the risk of uncertainty.

There are many ways to approach this, but the best is to plan to diversify. As businesses see the market for marketplaces, more will appear. Applico recommends that if you are in this market, you should look for as many opportunities to put your products into the hands of your clients as possible—joining multiple marketplaces.

Strategies for Large Distributors

For large distribution firms, the decision to join Amazon is risky. Pricing data, customer data, and more—you’re sacrificing relationships for a few extra sales. However, here are some offensive and defensive strategies to hold up:

The Defensive: Protect Yourself

According to MDM, you may want to start defensively. “The game requires defensive tech strategiesto protect pricing and product data from new competitors like Amazon. For example, distributors should consider putting up digital “curtains” that block Amazon’s (and others’) bots from scraping their eCommerce stores for product and pricing data.

The Offensive: The Market for Marketplaces

Amazon is providing a marketplace for sellers. It’s not a complicated concept, just one that is well-executed. There is no stopping a competitor from jumping into the fray, and the idea of creating a rival B2B marketplace might be ideal or at least preferred to joining the Amazon Business world. Wal-Mart built a competing B2C market, what’s stopping a variety of organizations in your industry from building or scaling a current marketplace to compete with Amazon? Applico notes a variety of these industry-specific marketplaces, as well as strategies for distributors in their whitepaper, available for download here.

Business Intelligence, ERP, and More: Address Weaknesses before Tackling Threats

It’s no lie that Amazon Business presents a huge threat to your distribution firm. However, who are you to change the world if you can’t clean your own room? When it comes to protecting your distribution firm from threats and competition, it pays to have your own people, processes, and technologies under control before you try to take down Amazon.

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